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Buyers beware: Due diligence is imperative

Be prepared when investing in your dream property

Investing in property anywhere in the world requires careful research and thorough due diligence. Some countries and regions are more transparent than others with strong laws and protections in place to protect both the seller and buyer.

South East Asia has had its share of nightmare scenarios for the unwary and underprepared investor, with Thailand in particular a notable hotspot because of its attraction and popularity for foreigners looking for dream homes. Investing in most of the regions’ capital cities is much more clear-cut with many reputable developers offering high levels of transparency. It’s when we head into the interiors and resort areas that things can be less well defined, especially where land is part of the deal.

Most investors that purchase abroad are looking for a second home, vacation apartment or a property that can appreciate in value as well as supply a regular rental income. So we are not inexperienced property buyers. In our home countries we are (quite rightly) punctilious when it comes to doing our homework. We studiously study the land title registry, structural surveys, town planning proposals, access rights and borders, any sewage works, checks on plumbing and heating, insurance, roofing, subsidence, vetting the neighbours, and making cost comparisons. This is all in the name of making absolutely sure that we are making a sensible, smart purchase, rather than buying into a liability.

However, our natural cautious mentality often takes something of a vacation when we start looking to buy property overseas. We allow ourselves to be easily beguiled by the ever-friendly sales people and the abundance of photos of palm fringed sandy beaches as if we were choosing a package holiday. This pre-occupation with ‘living the dream’ can certainly put our intuition and prudence on stand-by.

Proximity is also another factor. We may have only visited the country or area whilst on holiday and been enchanted or we are buying off-plan without ever having been there before. More often than not, we live in another country and don’t have the time to make frequent trips. Thus doing thorough due diligence becomes somewhat emotive, relying on the information provided by the developer rather than using our own intellect to challenge and check the facts presented. We may not have a clue about the local laws, attitudes to foreigners or the general economic and political climate. That’s why a site visit is essential, not just to bask in the sunshine, but to see for ourselves even the obvious things such as the locale and position of the property as brochures can be edited or airbrushed to create the perfect environment when that might not be the case at all.

For example, in Thailand, even though there is strong property title legislation, the law can be interpreted in many different ways depending on the bias of the local legal representative. Foreigners also have the added problem of translating documents where important information is not communicated or falsely entered. For example, buying a property with a spouse or partner who is a local can often see the rule of law stretched in their favour leaving the buyer exposed for many reasons.

Wherever the property, it is essential to engage legal (and financial) counsel from reputable law firms that have a track record of working with foreign investors, are unbiased to local forces and can extricate the buyer if the sale goes wrong. This is also true when purchasing through a sales agent. Reputable companies such as ALFA Investors choose their projects carefully, fully vetting the developer and conducting due diligence through a creditable law firm getting copies of all the requisite documents to present to their clients and ensuring that there is an honest exit plan should one become necessary.

Going it alone is extremely ill advised as frustrations can arise when asking developers questions such as how their projects are funded. Getting information on who the shareholders are or even if they have sufficient funds to complete the project irrespective of sales are often obfuscated to baffle the inexperienced buyer. These are some of the most important questions to be asking and ones that reputable developers and agents should have on hand with proof. They are far more critical than ‘how close is it to the beach?’ or ‘does it have an ocean view?’ The bottom line for anyone considering an off-plan investment is ‘how safe is my money and will I actually own it?’ Everything else is purely secondary.

Economic forces should also be analysed carefully, especially if buying a resort property and we want to get a rental return. We should be looking at tourism arrivals; are these going up year-on-year? We need to know the expected occupancy levels and what the anticipated room rates will be. How will the income be divided between the management company/developer and the owner? Of course, we would also want to know how many days a year we can enjoy our fantastic dream property.

ALFA Investors have a range of resort, villa and city properties in Thailand, the Philippines, Cambodia and Vietnam whose developers have met our stringent due diligence criteria satisfying our requirements allowing us to confidently introduce these amazing properties to our clients.